Business Structures

Business Structures

In the world of business, there are many ways to start a company. When a person makes the decision to start a business, the next step is to decide which structure to use. There are quite a few choices, from a Sole Proprietorship to a Corporation. Vanessa will discuss a few of these different structures, demonstrate the advantages and disadvantages of each one, and which structure is most appropriate for each type of business.

Sole Proprietor

A Sole Proprietorship is quite simple in the way it is set up. This platform is easy to initiate. All the owner needs to do is file the necessary paperwork to obtain the license(s) in order to open the business. Because it is a Sole Proprietorship, the owner is the person in charge; therefore, he or she will be the sole decision maker for the company. Also, the owner keeps all of the profits since he or she is the only owner for the business. There are disadvantages to this business structure. For instance, capital funds are limited to the owner’s personal funds or any loans he or she can receive. The owner is also responsible for any legal issues that may arise with the business or because of any actions of the employees.

Also, if the business fails, the owner is responsible for all debts of the business. Filing taxes is simple with a Sole Proprietorship. The owner just needs to fill out a Schedule C with his or her 1040 form and then transfer the bottom line amount, which calculates after the income and losses, to his or her personal tax return. The owner will also need to fill out a Schedule SE with his or her 1040 as well to tabulate the amount of self-employment tax the owner may owe. Additionally, while the owner will not have to pay unemployment tax on him or herself, the owner will have to pay this tax on any employee the business employs. To sell the business, the owner can sell to whoever he or she wants and for how much money he or she decides.

Partnership

A Partnership is better for...